German Inflation Slows, Bolstering ECB Case for Surge to Ease

(Bloomberg) -- Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

German inflation slowed from its highest level in decades, supporting the European Central Bank’s view that record consumer-price growth in the euro area will ease without the need for interest-rate increases.

Prices in December rose 5.7% from a year ago under a European Union-harmonized measure, down from the previous month’s 6% advance, data released Thursday showed. Economists surveyed by Bloomberg had predicted a rate of 5.6%.

The reading adds to signs that price pressures in the currency bloc are abating following a surge driven by supply-chain disruptions and a spike in energy costs. Bank of France Governor Francois Villeroy de Galhau said this week that inflation is close to its peak after a report showed consumer prices in Europe’s second-largest economy stabilizing.

While Spain and Italy both saw inflation quicken last month, euro-region data due Friday are set to show a slight deceleration, to 4.8%, according to economists surveyed by Bloomberg.

The recent slowdown in Germany was driven by an easing of energy costs. At the same time, food prices rose at a faster clip.

But even as inflation slows, it’s likely to stay above 2% through 2024, the Bundesbank forecast last month. Price growth is expected to ease further at the start of this year as a temporary sales-tax cut in the second half of 2020 leaves the comparison base, though the effect on inflation of the coronavirus’s omicron strain is unclear.

©2022 Bloomberg L.P.